After managing a business for many decades, this is not an easy task for founders. Morten Bennedsen is a professor at INSEAD of family enterprise and academic director for the Wendel International Centre for Family Enterprise. So they return to managing their firm for 80 hours each week and have no time to reflect on these matters. 

What happens to the succession when that neglect is willful?

Bennedsen stated that too many people die from heart attacks. If you fail to plan or if the founder isn’t willing to talk about them, nature will eventually make the transition. And in the most terrible way.

The results of his survey on family businesses suggests that while the U.S. has made improvements in succession planning, Europe still sees a large number of founders who don’t have one. A majority of the founders in Europe are planning on creating a succession plan in the next 10 to 15 years. However, he stated the exact same for America.

China is home to hundreds of thousands private businesses without any succession plans. China’s demographic policies over the last half century have also made it difficult for many of these firms to be considered successors.

Bennedsen stated, “Planning is more than just thinking about it in the head.”

Family members should know about the plans and communicate them to their loved ones, including those expected to become successors.

Nixon Medical in Delaware is an example of this. It was founded by Murray Berstein, in 1967. The company continues to grow at a fast pace. The company which produces medical linens and apparel had revenues of between $9 million to $10 million in 1997. The firm’s annual revenue had risen to $20million by 2007, when Murray left the company. The firm’s annual revenue has risen to over $80million as the company expanded its operations from three mid-Atlantic locations and three more locations to 10, now servicing the mid-Atlantic region, New England and Texas.

Jason Berstein (current president of the company and one Murray’s sons) credited the company’s success to the willingness of his father to establish a plan for succession and ownership and consider making a living as an entrepreneur after the sale of control. Berstein stated that his father is still passionate, despite not having any ownership or leadership. It was hard for him, but it was the right thing for our family.

Nixon Medical had mapped out the steps, but didn’t make the final decision about who was to lead the team until late 2006. This happened before the father retired from daily leadership duties in 2007.

Three Berstein brothers and a family business consultant were involved in that plan when they were in their 20s. Each of them still holds roles in the company that suit their skills. Berstein stated, “Unless we knew that we were brothers you would think we are three executives.”

He said, “One of the benefits of being ahead of things in succession issues is that if you make these decisions without having to take immediate action, it makes it much easier for everyone to understand how things work, and it leads in a smoother outcome than when it’s an emergency.”

Berstein also advised that their father transferred the business’ ownership to his children. This is a good practice for family businesses, Berstein says. It allows the new leaders to run the operation financially independently of the founder.

“He doesn’t have to worry, it won’t impact him financially but he cares because it’s his 4th child or perhaps first, and we are the 3rd,” he stated. 

Nixon Medical, in addition to having a founder willing to act on succession plans, had one major advantage: Nixon Medical’s family wanted to be the next generation of the company. Since the 1970s and 1980s, it was a common expectation that the next generation would take over the family business.

It is not possible to force children from Europe and the U.S. into taking over the business. Bennedsen said that the next generation will not say no more frequently. The idea is not well-liked by peers and parents, so it’s best to stick with mom or dad. Everybody wants to become Steve Jobs and start their own business.

Jennifer Pendergast is the executive director of Northwestern University’s John L Ward Centre for Family Enterprises.

A mentorship model is essential for family-owned businesses where the children may be interested in taking over. There are many idiosyncratic elements to managing a family business and there are operational reasons to in-house grooming. Bennedsen stated that the network of business and political contacts built by the founder is much easier to pass within a family than it would be to an “McKinsey” type. He stated that it was important for the next generation to have those unique skills in order to succeed. The more exposure they have to the company, the greater the possibility of them being a viable option.

Ann McNeill was Ionnie McNeill’s mom. Ann founded MCO Construction. Ann is also the first African American woman in Florida to start a general contracting firm. Ann and Ionnie shared their entrepreneurial lives throughout childhood. McNeill stated, “I gained work experience and was exposed to entrepreneurship and business the way that most kids do not.” “I attended school then went back with my mom to the office. I did homework in the car and helped sort the mail.

The best successions in a family will be more successful if the next-generation leader includes experience and education outside of the family business. Bennedsen explained that “if you are going to leave the company to your children, it is essential to maintain a healthy mix of the assets in the family and those held by professional CEOs.” If you do not have the ability to learn your skills, you will be in an untenable position. 

The skill set of wealth-creators from the first generation is different to that of their children.

Michael Sonnenfeldt founder of Tiger 21, an investment and professional networking group for entrepreneurs. “It doesn’t mean that they aren’t as bright.” They are just kids who have all of the advantages that their parents did not enjoy. It’s not natural for them to believe children of successful entrepreneurs will be able match their parent’s entrepreneurial abilities. Sometimes it happens, but this is not the norm.

People work hard building businesses. They want to share the opportunity with their kids. Although passing on businesses can seem like a burden, it is not always the case. However, the notion that operating companies are difficult to transfer to the next generation of owners is largely true.”

This is the reason why most Tiger 21 member have taken their companies public or sold them to other investors. He believes that the money they made and the potential value it can be passed on to their children will be better protected than in the actual business.

However, there are some exceptions such as natural resources or real estate which can retain their value longer than operating companies. Operating companies can be a risky business if you aren’t the best. Your next competitor could take your company out of existence. The next generation won’t have the same skills as founders of operating businesses. Sonnenfeldt stated that when the only asset is the people, it can be harder to keep pace with the competition.”

Nixon Medical will again face this challenge in the future. Berstein (49), said that he’s now considering how difficult the transition between generation 2 and 3 of his family members will be. Brothers are yet to determine if they will continue the family leadership for a third-generation.

Berstein explained that the company was smaller if one goes back to the past. It will become more challenging to find a family member qualified to run the business if the company continues to thrive. He said, “You must be 100% committed.” 

Berstein stated, “I still have plenty to go, but we made a decision that whoever becomes the leader is not guaranteed for their lives.” “It all depends upon performance. We set up an independent board that would manage and fix my compensation.”

Bernstein’s siblings and he will be faced with challenges. Not all children have the same number, which dilutes ownership. And not all children (9 in total) will want work in the family company. His statement was, “We do not expect the majority to be in the business. But we expect the minorities to.”

The plan, however, is exactly the same as their father’s: don’t wait to implement the succession of leadership and the ownership transition processes. It might not be easy to abandon it.

McNeill explained that McNeill’s older sister (12 years her junior) was to lead MCO Construction in the future based upon business plans dating back to the 1990s. However, McNeill indicated her sister wasn’t right for the job. McNeill explained that McNeill was shocked by McNeill’s comments. “She would come back, and she would come back again and leave and return and leave and go back. My mom wasn’t sure she could run the business.”

This made her the probable successor. However, over the last six years she admitted, “I did the merry-go round.”

“I was able to tell my mom that she can do one when it came down the succession plan. McNeill explained that McNeill soon realized the truth about my mother. She was also a person. McNeill had to face her stresses and weakness and knew she would not give up. “For about two or three years, I was like, “Hey, this is what we have to do.” Because of the amount I had spent trying to get my wife to make a succession planning, I realized that I could do it myself.

McNeill saw clearly once she did. She was also able express her realizations to McNeill’s mother. Instead, the relationship was suffering and they began to re-examine how to be a mother-daughter partnership without the need for a business. This didn’t happen easily. She was always supportive, but she didn’t believe I could do it.

McNeill said she was worried about her mother’s reaction if McNeill left. Some of her questions led her to feel shameful, like “Will your love still be there if you leave?” But she insists that it was essential to let all of this out.

She stated, “I pay for therapy and I must get my money’s worth.” The next generation must be able to say, “It’s not your family’s business. It’s yours.”

Pendergast explained that second-generation family members shouldn’t feel an obligation to manage a family company.. “Lucking it out” may not be something that everyone desires.

Many people who find businesses can’t stop moving and are tough individuals. That’s how much fun it is! They will second-guess every decision. It’s still Christmas and Thanksgiving, but do you want this to become all about your business? Elle added.

McNeill and her mother have a new relationship, although it is not broken. The two have co-hosted a podcast called #MyInvestingStory.,Every night she has dinner with her parents. She stated, “We don’t discuss the business unless we have some exciting news.”

Berstein explained that “family businesses receive a lot of negative publicity.” People say it sounds terrible and then you hear all about the horrors. Many places are wonderful to work in, are managed professionally, and have great economic benefits.

Multi-set of children and more divorces are part of an ever-changing family structure. This will complicate the natural succession planning process of multigenerational firms. Even though demographic and cultural megatrends may be beneficial, many family successions should have never been attempted. Two-thirds of all private companies are family-owned, with one-third being sold and the other having ownership transfers within their families. This could drop to between 50% and 50% over the next few years.

Bennedsen expressed concern that there would be less succession of families in the future, but that we might see fewer catastrophes.

His experiences include a Nigerian entrepreneur with many wives and children. A Danish entrepreneur who bought a large firm from institutional investors at the age of 1994, then sold it to his own family. However, his desire to discuss succession with his kids was not fulfilled. Then there were allegations of murder over the control of the family fortunes.

Bennedsen said, after having seen “a few” episodes on “Succession, that it was hard to imagine the things that can happen in families. Is it possible to imagine all of this happening within one family? “I’m not certain.”